Before the COPYRIGHT ROYALTY JUDGES

Washington, DC

In the Matter of ) )

Phase II Distribution of the 1998 ) and 1999 Cable Royalty Funds )

Docket No. 2008-1 CRB CD 1998-1999 (Phase II)

SETTLING DEVOTIONAL CLAIMANTS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

The Settling Devotional Claimants ("SDC") hereby submit their Proposed Findings of

Fact and Conclusions of Law with respect to the hearing held before the Copyright Royalty

Judges on September 2-4, 2014, and September 8, 2014.

The Copyright Royalty Judges called the hearing to determine the appropriate Phase II

distribution of the 1999 cable royalty funds attributable to the devotional programming category.

These royalty funds are to be distributed among the SDC claimants and the Independent

Producers Group ("IPG") claimants. The Judges identified the valid claimants in their June 18,

2014, Ruling and Order Regarding Claims and Separate Opinion. Ruling and Order Regarding

Claims and Separate Opinion, Docket No. 2008-1 CRB CD 1998-1999 (June 18, 2014) ("Claims

Ruling").

FINDINGS OF FACT

I. VALID DEVOTIONAL CLAIMANTS

1. The SDC are comprised of the following claimants for 1999 cable royalties: (1)

The Christian Broadcasting Network, Inc., (2) Coral Ridge Ministries Media, Inc., (3) Crystal

Cathedral Ministries, Inc., (4) In Touch Ministries, Inc., and (5) Oral Roberts Evangelistic

Association, Inc. See Exh. SDC-D-002, at App. C.

2. IPG has asserted claims on behalf of the following claimants: (1) Adventist Media

Center Productions, (2) Benny Hinn Ministries, (3) Creflo A. Dollar Ministries, (4) Eagle

Mountain International Church aka Kenneth Copeland Ministries, (5) Feed the Children, Inc., (6)

Life Outreach International. See IPG-D-00 1, at IPG-1.

3. The SDC have challenged the validity of several claimants represented by IPG.

Following the Preliminary Hearing on May 5 and 6, 2014, the Judges dismissed IPG's claims in

this proceeding on behalf of (1) Adventist Media Center Productions, and (2) Feed the Children,

Inc. Claims Ruling at 22. Over the SDC's objections, the remaining claimants represented by

IPG are entitled to a portion of the 1999 cable royalty funds in the devotional category.

II. RELEVANT FACTORS FOR ALLOCATION OF CABLE ROYALTY FUNDS

4. The appropriate allocation of funds in the devotional category must be based on

the relative market value of the SDC's distantly retransmitted programming as a whole and the

relative market value ofiPG represented claimants' distantly retransmitted programming as a

whole. Because the SDC and IPG each have their own internal methodologies for distributing

funds among the individual claimants, the Judges need not assign a value to each individual

claimant.

5. The SDC's valuation methodology is based on distant viewership as measured by

a custom report from Nielsen and the testimony of John Sanders, an experienced and well­

qualified expert in the field of valuation of media assets, including television programming.

6. IPG's valuation methodology is based on several metrics devised on behalf of

IPG by Dr. Laura Robinson, an economist with no demonstrated experience or skill in the

valuation of television programs. These metrics are: number ofhours of broadcasts on the air;

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time of day of the broadcasts by quarter hours; a "fee generation" matching game metric; and

average distant subscribers per cable system.

7. As shown below, IPG's methodology is worthless. The SDC's methodology, on

the other hand, although imperfect, is a reasonably reliable method for determining the allocation

of the 1999 royalty shares.

III. lPG'S METHODOLOGY

8. IPG's proposed methodology is based on a series of approaches developed by Dr.

Laura Robinson, an economist with essentially no experience relevant to this case. She has

never conducted the valuation of a television station or cable system operator, and has never

advised a buyer or seller of a television program in a real-life transaction. Tr. 74:19-79:9

(Robinson). Although Dr. Robinson testified that she served as an expert witness in the

valuation the television program American Idol in an unrelated litigation (Tr. 82:3-17), it appears

that her experience in this regard was fabricated, or at least overstated. The decision in that case

reveals that the case related to valuation of stock, and not the television program, that Dr.

Robinson was not a valuation expert for either party, and that her expert testimony related only

of the adequacy of an auction method used to value the stock. Tr. 222:4- 227:13 (Robinson);

Exh. SDC-R-005 at 4, 19.

9. As set forth below, Dr. Robinson's analyses proved in many places to be

incompetent at best, and downright deceptive at worst. In addition to overstating her credentials,

she intentionally selected and manipulated her methodologies to obscure value in SDC

programming (most notably with respect to her "fee-generation" metric, discussed below). On

rebuttal, she feigned ignorance of the method used by the SDC' s witness, Alan Whitt, to compile

the report of distant viewing on which the SDC's expert witness relied, and then evaded

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questions on cross-examination revealing that she had in fact successfully replicated Mr. Whitt's

results. She used phony statistical analysis derived from data provided to her exclusively by IPG

to try to fool the judges and the parties into believing that aggregating data increases standard

error, a perversion of the most basic principles of statistics. Dr. Robinson was not a credible

witness. Not surprisingly, her measures are inappropriate and unusable determining the relative

market value of the SDC and IPG claims in this proceeding.

Number of hours of broadcasts on the air

10. The first measure used by Dr. Robinson compares the total number of broadcast

hours of IPG programming for the distantly retransmitted broadcasts claimed by the SDC and

IPG, using a sample of stations selected by IPG's employee and former owner, Raul Galaz, a

disgraced lawyer and convicted felon who served time in prison for defrauding the Copyright

Office in royalty distribution proceedings like this one. Exh. IPG-D-001 at 28; Tr. 229:22-230:8.

11. Dr. Robinson admits that the number of hours of broadcasts is not a measure of

value. Tr. 239:11-17 (Robinson); Tr. 240:17-243:22 (Robinson). Although she describes this

metric as a measure of"volume," it is not a relevant measure of"volume," because it measures

only the amount of time on the air, and not the volume of programming actually distributed to

distant subscribers. Tr. 247:21-251:8.

12. A measure based solely on volume is ineffective because it fails to account for

any of the factors that are significant to determining value, such as the quality or content of the

IPG versus SDC programs and whether anyone is watching the programs. Exh. SDC-R-001 at 5;

Tr. 247:5-11 (Robinson). The number of hours of broadcast tells us nothing about how much

viewers and cable system operators value the program. For example, viewers and cable system

operators may find a 30-minute episode of Seinfeld more valuable than a 90-minute infomercial

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on shampoo, or a 60 minute Hour of Power featuring Rev. Robert Schuller more valuable than

five 30 minute Life Today programs with James Robison.

13. Even as a measure of volume, instead of value, this measure fails. Some

broadcast hours are retransmitted by many cable systems, while others are retransmitted by only

a few cable systems. Tr. 1085:15- 1086:10 (Erdem). Some are retransmitted to tens ofmillions

of subscribers, while some are retransmitted to only thousands of subscribers. Id. Broadcast

hours is not a relevant measure of volume of distant retransmissions.

Time of day of retransmitted broadcasts

14. IPG's second measure compares the time of day viewership ofiPG versus SDC

programs. Using 1997 sweep data produced by the Motion Picture Association of America in a

previous case, Dr. Robinson estimates the average number of total television viewers for each

quarter-hour when IPG or SDC programs were broadcast according to Dr. Robinson's Tribune

data selected by Raul Galaz. Tr. 254:18- 255:6 (Robinson). Although the time of day analysis

relies in part on viewership data, Dr. Robinson's time of day measure as presented is flawed in

concept and application.

15. First, although it may be that time of day is related to value, it is not a measure of

value. It might be inferred that a program that is broadcast at a very low-viewer population time

of day is likely to have fewer viewers- and therefore less value- than it would if it were

broadcast at another time during the day. But, as Dr. Robinson herself conceded, it does not

follow from this inference that two programs broadcast at similar times of the day have similar

value. Tr. 264:13-21 (Robinson). A program broadcast opposite the Super Bowl should not be

expected to have the same value as the Super Bowl. A program broadcast opposite Seinfeld

should not be expected to have the same value as Seinfeld on that basis alone.

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16. Second, even if the concept were plausible- which it isn't- Dr. Robinson's

application is flawed. She uses Nielsen data from 1997, instead of 1999. The sample stations in

her 1997 Nielsen data are a poor fit for the 1999 Tribune sample that she used to determine the

time of day of the broadcasts. She takes no account of the day of the week, even though

weekend (especially Sunday) viewership might be expected to vary from weekday viewership,

particularly for devotional programs. Tr. 260:9- 261 :22; 263:12-16 (Robinson); Tr. 1089:1-

1092:6 (Erdem); Exh. SDC-R-001, at 13.

17. Finally, Dr. Robinson's analysis does not show, as she asserted, that SDC and

IPG programs are broadcast at times of day that have approximately equal viewership. It shows

(for whatever it is worth) that SDC programs, on average, were broadcast at relatively higher­

value times of day.

Fee generation

18. Dr. Robinson's third measure combines CDC data on fees paid by station, and TV

Data on broadcast hours by station (again based on Dr. Robinson's sample of stations selected by

cable royalty fraudster Raul Galaz), ostensibly for the purpose of comparing the amounts of fees

paid by cable system for retransmission of stations carrying SDC and IPG programs. Tr. 229:11-

16; 271:14-20 (Robinson).

19. First, a royalty allocation methodology based on fee generation has been

discredited by the Judges in prior distribution proceedings. See Distribution of the 2004 and

2005 Cable Royalty Funds, 75 FR 57063, 57072-57073 (Sept. 17, 201 0). Particularly for

devotional programming that represents only a small fraction of the total programming on a

station, it is not possible to allocate fees on a program-by-program basis. Tr. 1087:6-1088:20

(Erdem). SDC expert witness Dr. Erkan Erdem illustrates this point with an example of two

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grocery stores, one large and the other small, with each one selling a different brand of coffee.

In order to determine which brand is more valuable, one must know how many customers

purchased each brand of coffee in the respective grocery stores. I d. Use of fees generated by

television stations to determine the relative value of individual programs on those stations is

analogous to using the grocery stores' total revenues in order to compare the value of individual

brands of coffee sold in those stores. !d. It simply does not work.

20. But even if fee generation were a valid measure in concept, Dr. Robinson's

implementation was abysmal and intentionally deceptive. Rather than calculating aggregate fee

generation by stations carrying IPG and SDC programs, Dr. Robinson devised a "matching

game" by number of quarter hours broadcast on stations in each of ten "fee generation

categories" selected by Dr. Robinson. Dr. Robinson claimed that her matching game

demonstrated that she could "match" every SDC quarter hour of programming with an IPG

quarter hour in an equal or higher "fee generation category," thereby supposedly demonstrating

that IPG programs were on stations to which "more than 50%" of fees were allocable. IPG-D-

001 at 32 and IPG-8. This claim turned out to be false.

21. First, the "fee generation categories" were concocted entirely by Dr. Robinson,

and bear no relationship to any marketplace reality. Tr. 272:9-17; 279:15-281:14. The first eight

categories were in $50,000 increments ($0-$49,999; $50,000-$99,999; $100,000-$149,999; etc.),

but the ninth category, "$400,000+," had no upper boundary. Id.; IPG-D-001 at IPG-8. This

means that in the ninth category, Dr. Robinson was matching IPG quarter hours of programming

on stations with between $400,000 to $1.6 million in fee generation to SDC quarter hours of

programming on WGN, with $53 million in fee generation (more than 1,000 increments of

$50,000 above Dr. Robinson's "$400,000+" category). Tr. 281:14-284:11 (Robinson). Indeed,

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it appears that Dr. Robinson's fee generation categories were likely designed to obscure the

overwhelming advantage to the SDC of a consistently designed fee-generation measure, as a

result ofSDC programming on WGN (often identified in the distant marketplace as WON­

America or WGNA), by far the largest retransmitted station.

22. But even with her concocted "fee generation categories," Dr. Robinson was still

unable to "match" all of the SDC's quarter hours in the "$400,000+" category without creating

an even higher fee generation category for stations with "unknown" fee generation. Tr. 285:15-

293:5. According to Dr. Robinson's matching game, a station with "unknown" fee generation

has even greater fee generation than a station in a category with no upper limit. If quarter hours

on "unknown" stations had been assigned to the lowest category, instead of the highest category,

then Dr. Robinson's matching game would have failed out of the box, because IPG would have

had substantially more quarter hours than SDC in the lowest "unknown" fee generation category.

I d.

23. After dismissal ofiPG's claims for Feed the Children and Adventist Media Center

Productions, Dr. Robinson recomputed her matching game. Exh. IPG-D-009. Even with the

concocted fee generation categories, and even giving IPG the benefit of placing stations with

"unknown" fee generation in a category higher than the "$400,000+" category, Dr. Robinson

was unable to "match" all of the SDC's quarter hours. Tr. 294:6-296:4. Nevertheless, she still

testified that IPG had "more than 50%" on the basis of this measure. Exh. IPG-D-013. Dr.

Robinson admitted on cross examination that this was not true. Tr. 304:20-305:6 (Robinson).

24. In response to questioning from Judge Strickler, Dr. Robinson agreed to

recompute a "fee generation" metric using aggregate fee generation, instead of matching by fee

generation category. Tr. 308:15-309:20 (Robinson); Tr. 397:13-402:18 (Robinson). But instead

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of computing aggregate fee generation, she computed a metric of weighted average fee

generation by quarter hour, again with the apparent purpose of obscuring the overwhelming

effect ofprogramming on WGN. Tr. 1032:5-1033:22 (Robinson). Because Dr. Robinson's data

show that the SDC have more quarter hours of broadcasting, a calculation of average fee

generation by quarter hour understates the total fee generation allocable to SDC programs by a

fee generation methodology. Tr. 1034:10-20 (Robinson).

25. Even with the distortion caused by Dr. Robinson's use of average, instead of

aggregate, fee generation, Dr. Robinson's revised computation shows that the average SDC

quarter hour of programming was broadcast on stations with eighteen percentage points higher

fee generation than the average IPG quarter hour of programming- a fact that Dr. Robinson had

tried hard to obscure by use ofher matching game. Exh. IPG-D-016.

Average Subscribers Per Cable System

26. Dr. Robinson's final metric measures the average number of distant subscribers

per cable system retransmitting IPG programming versus SDC programming. Tr. 311:21- 312:7

(Robinson). Because the metric measures average subscribers per cable system, without taking

into account the number of cable systems retransmitting a station, it bears essentially no

relationship to the number of distant subscribers actually receiving a program- much less the

number of distant subscribers who watch the program. Dr. Erdem demonstrated, and Dr.

Robinson admitted, that this metric can actually go up when programs are eliminated, simply

because some programs happen to be retransmitted by cable systems with slightly lower than

average numbers of subscribers. Tr. 331:6- 345:4 (Robinson); Exh IPG-R-001, at 8. Indeed, this

metric went up for IPG after the dismissal of Feed the Children and Adventist Media Center

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programming. Exh. SDC-R-001 at 7-10; Tr. 329:17-330:12 (Robinson). The direction of

movement is wrong, demonstrating that the metric is useless.

27. Even Dr. Robinson admitted in response to questions from Judge Feder that she

does not know whether programs would be more or less valuable if retransmitted by cable

systems with average numbers of more or fewer subscribers. Tr. 405:5-407:3 (Robinson). She

speculated that cable systems with more subscribers might have deeper pockets (implying

willingness to pay more value) or greater bargaining power (implying willingness to pay less

value). I d. But even these speculations are implausible, because deep pockets and bargaining

power would exist, if anywhere, with the cable system operator, which is likely to own many

cable systems, and not at the level of the cable system itself. There was no evidence suggesting

that large cable system operators are especially likely to own large cable systems, as opposed to

higher numbers of small cable systems. Tr. 316:12-20 (Robinson). Indeed, there was no

evidence suggesting that how or whether cable systems generally vary much in size. All Dr.

Robinson's metric really shows is that SDC and lPG programs, on average, are retransmitted on

cable systems of approximately average size - an unsurprising and unilluminating finding.

"Sensitivity Analysis"

28. Finally, Dr. Robinson applies what she describes as a "sensitivity analysis" to

estimate what she believes to be a "zone of reasonableness" for each ofher different metrics. In

fact, she does not apply a true sensitivity analysis, which would involve changing an assumption

to see what effect it would have on the results. She simply multiplies each of her results by 71%

to find the bottom of the zone.

29. In response to questioning from Judge Strickler, Dr. Robinson defended her use of

71% by saying that her sample of stations contains "a majority of the data." Tr. 156:5-22

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(Robinson). But this is not true, as she later conceded. Tr. 368:21-369:20 (Robinson). Rather,

her sample contains stations accounting for 71% of all of all fees paid into the cable royalty fund

for 1999. Jd. By this measure, WGNA alone accounts for more than 40%, and all the other

stations in Dr. Robinson's sample account for only about 30%. Tr. 370:12-21 (Robinson); Tr.

371:19-372:11 (Robinson). The remaining approximately 29% of total fee generation is from

literally hundreds of stations not included within Dr. Robinson's sample. Tr. 358:6-359:20

(Robinson). Dr. Robinson's sample therefore includes only a relatively small amount of the total

data that would be relevant to her metrics. Id. This alone would not necessarily undermine the

reliability of her results, except that unlike the SDC, Dr. Robinson did nothing to assess whether

her sample was representative. Tr. 239:4-10 (Robinson). Ironically, the Judges sustained an

objection by IPG to the only evidence offered in the proceeding suggesting that Dr. Robinson's

sample was representative. Tr. 1093:5-1094:22.

30. In sum, IPG's methodology is useless in determining the relative market value of

the SDC and IPG programming in this proceeding.

IV. SDC METHODOLOGY

31. The SDC propose an allocation methodology based on expert testimony as to

what buyers and sellers actually value in the purchase and sale of television program licenses -

program viewership. Exh. SDC-D-001, at 5-6; Tr. 487:14-488:15 (Sanders). In support oftheir

methodology, the SDC present the testimony of John Sanders, a qualified expert in the field of

valuation of media assets, including television programs. Tr. 463:20-464:4 (Sanders). Mr.

Sanders has more than thirty years of experience in this field, having participated in the

appraisals of more than 3,000 communications and media businesses. Tr. 456:20-462:12

(Sanders); SDC-D-2, at 2-3 and App. A. Much of his work has focused on the television and

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cable industries, including the valuation of television programs, television stations, and cable

systems. !d. His clients frequently include both buyers and sellers of television programs, in

real life transactions. !d.

32. Mr. Sanders was asked to determine the relative fair market value of the SDC's

programs and IPG's programs. Tr. 468:4-12 (Sanders). He defined "fair market value" as "the

price in cash or cash equivalents that would convey.between a willing buyer and a willing seller,

both being fully informed of the relevant facts and neither being under compulsion." Tr. 4 72:11-

473:1 (Sanders). He explained that the difference between fair market value and "relative" fair

market value is that "relative" fair market value is to determine proportionally how much value

is attributable to one collection of assets as compared to how much value is attributable to the

other. Tr. 473:2-12 (Sanders). "In other words, fair market value would likely be expressed in

dollars. Relative fair market value would likely be expressed as a percentage." Tr. 473:13-16

(Sanders).

33. With respect to the requirement that the buyer and seller each be "fully informed,"

Mr. Sanders clarified that "fully informed" is not the same as "all-knowing." Tr. 474:11-475:4

(Sanders). It simply means having adequate knowledge of the relevant facts and circumstances

to the issue or the proposed transaction at hand. !d. "I don't think in any engagement I've ever

been involved in ... we have had all the information we would like to have. Typically, a

valuation exercise is endeavoring to reach a conclusion based upon the information that is

available." Tr. 474:20-475:4 (Sanders).

34. Mr. Sanders's definition of"fair market value," particularly with the explanation

that "fully informed" means "having adequate lmowledge," is functionally identical to the

definition given by the Supreme Court and used in the past by the Judges: "the price at which

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the property would change hands between a willing buyer and a willing seller, neither being

under any compulsion to buy or sell and both having reasonable knowledge of relevant facts."

Distribution of the 2000, 2001, 2002 and 2003 Cable Royalty Funds, Docket No. 2008-2 CRB

CD 2000-2003, 78 Fed. Reg. 64984, 64991-92 (Oct. 30, 2013).

35. Mr. Sanders testified that in advising a cable system operator in the purchase of a

license to retransmit a television program, he would rely primarily on audience measurement.

Tr. 476:10-477:11 (Sanders). He explained that any programming, whether aired on a television

station or a cable system, will be of value to that business only if it is actually generating

viewers. Tr. 477:16-20 (Sanders). A cable system operator's first goal is to offer a wide menu

of different categories of programming that will attract subscribers: movies, sports, religious

programming, etc. Tr. 478:4-14 (Sanders). But within each category, the cable system

operator's objective is to have individual program titles that viewers will actually be interested in

watching, because more viewers within a category will attract more subscribers. Tr. 478:15-

479:1 (Sanders).

36. Similarly, Mr. Sanders explained that a seller of television programming with

higher evidence of viewership could be more aggressive in negotiating a price for the sale of the

programming, whereas a program with no evidence of viewership will be in a "very severely

handicapped position." Tr. 479:2-18 (Sanders).

37. Valuation within a category of programming is therefore reliant on audience

measurement data. "[T]he most ubiquitous and widely accepted and authoritative source of that

data is Nielsen." Tr. 480:6-13 (Sanders). Of course, it is widely recognized that Nielsen

measurements are imperfect. But it is the best and most comprehensive data available, and

economic decisionmakers in the television industry have come to rely upon it as the basis for

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their decisions. Tr. 481:1-13 (Sanders). Although some businesses will try to conduct their own

surveys or alternative ways to measure viewership, these alternative methods are generally not

given the same degree of reliance as Nielsen measurements. Tr. 485:20-487:3 (Sanders).

38. To conduct his valuation in this case, Mr. Sanders relied in substantial part upon

the Nielsen Devotional Household Viewing Hours Report on Programs ("HHVH report")

compiled by SDC witness Alan Whitt.

39. The HHVH report is based on Nielsen estimates of distant household viewing

based on a sample of stations selected by Marsha Kessler, a former employee of MP AA (referred

to throughout the hearing as the "Kessler Sample"). Tr. 488:10-490:2; 495:9-13 (Sanders). Mr.

Whitt merged Nielsen distant program viewing data (from six "sweep" months of diary data) for

the stations appearing in the Kessler sample with program information data from Tribune Media

Services to prepare the HHVH report of devotional distant signal viewing. Exh. SDC-D-00 1; Tr.

418:12-17; 433:21- 434:21 (Whitt). Although IPG has attempted to raise objections to the

manner in which the HHVH report was prepared, IPG's own expert witness testified (after

unsuccessfully attempting to evade the question) that she reached substantially the same results

in all material respects when she merged the underlying data and ran the search terms for

devotional programming. Tr. 850:15-861:7 (Robinson).

40. Using the HHVH report and the lists of program titles and claimants identified

SDC and IPG, Mr. Sanders prepared a chart containing only the programs claimed in this

proceeding. Tr. 489:2- 490:2 (Sanders). He then reviewed the chart of programs and stations in

order to make a judgment as to whether the data was reasonably representative. Tr. 491:6-

492:14 (Sanders). He found that all ofthe top ten Nielsen designated market areas were

represented in the list, and that larger markets generally appeared to be well represented. Id.

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This is important because, in Mr. Sanders's experience, most distant signal carriage is in smaller

markets retransmitting signals from large markets. Id. Mr. Sanders gave the example that it is

more likely for a Harrisburg, Pennsylvania cable system to carry a Washington, DC station than

the other way around. Tr. 491:12-21 (Sanders).

41. Mr. Sanders further observed that many of the smaller markets in which

devotional programming was broadcast appeared to be from what Mr. Sanders described as

"Bible Belt markets," like Tuscaloosa and Birmingham, Alabama. Tr. 492:8-14 (Sanders). It

was not surprising to observe devotional programming retransmitted on stations from those

markets, suggesting that there were sufficient smaller markets in the Nielsen sample used in the

HHVH report to present a reasonable and representative picture. Id. Although Mr. Sanders

acknowledged that the Nielsen sample from which the HHVH report was derived was likely not

a random sample, he found it to be "a convincing body of data, and I wouldn't have any

hesitation using this if I were advising a client to make an actual economic decision related to

this programming." Tr. 496:1-498:5 (Sanders).

42. Mr. Sanders then calculated the total household viewing hours for the SDC versus

IPG programs, aggregated the positive viewing results with the zero viewing results for both the

SDC and IPG, and used the aggregate positive values to arrive at a relative share of 81.5% for

the SDC and 18.5% for IPG. Tr. 490:13-491:6; 476:5-8 (Sanders).

43. To further test the reasonableness of the SDC and IPG relative shares allocation,

Mr. Sanders reviewed the Nielsen Station Index ("NSI") Report of Devotional Programs from

February, 1999, which summarizes the local ratings of programs during that sweep month. Tr.

491:7-492:14 (Sanders); Exh. SDC-D-002, at 9-10. Recognizing that local ratings data covers a

different set of viewers and time period from the distant viewing at issue in this proceeding, Mr.

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Sanders used a correlation coefficient analysis to measure the relationship between the NSI local

signal data and HHVH distant signal data (excluding programming on WGNA for purposes of

the correlation coefficient, because the number of distant subscribers was incomparable to distant

subscribership for other stations in the HHVH report). Tr. 501:17-503:21 (Sanders); Exh. SDC­

D-002, at 10. He found a correlation coefficient of 0.75, suggesting that a program that is highly

viewed locally is also likely to be highly viewed on a distant basis- not a surprising conclusion.

Tr. 503:2-21 (Sanders). This analysis revealed that the NSI data provided a reasonably

predictable correlation to the HHVH data, and in both instances, the SDC claimants controlled

three ofthe four top ranked programs. Tr. 501:17-504:16 (Sanders); Exh. SDC-D-002, at 10-11.

This was consistent with Mr. Sanders's conclusion that the SDC-claimed programs have greater

relative market value on the whole than the IPG-claimed programs. Tr. 504:17- 506:11; 507:1-

510:9 (Sanders). Mr. Sanders also observed that the two top-rated programs in both the HHVH

report and in the NSI report- In Touch and Hour of Power, both of which are SDC-claimed

programs- together generated a majority ofthe total viewing. Tr. 503:22-504:16 (Sanders).

44. On the basis of the HHVH report, confirmed by Mr. Sanders's own observations

and the reasonable correlation between the HHVH report results with local viewing reported in

the NSI report, Mr. Sanders found a relative fair market valuation of SDC-claimed programs and

IPG-claimed programs as follows:

SDC: 81.5%

IPG: 18.5%

Tr. 475:16-476:8 (Sanders).

Criticisms of the SDC methodology

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45. In her written rebuttal testimony and orally, Dr. Robinson identified three alleged

criticisms ofthe SDC methodology: (1) Mr. Sanders has relied on the results ofMr. Whitt's

HHVH report, which she claims cannot be replicated (notwithstanding the fact that she

successfully replicated it herself), and no evidence is available concerning how the Kessler

sample used in the report was selected, (2) Mr. Sanders relies exclusively on viewership as a

measure of relative value, and (3) Mr. Sanders has not accounted for the high incidence of zero­

viewing in the Nielsen data. However, evidence presented at the direct and rebuttal hearing

overwhelmingly demonstrates that Dr. Robinson's critiques either are invalid or do not

substantially affect the reliability and usefulness of the SDC methodology for determining the

relative market value of the SDC and IPG programs.

a. Data underlying the HHVH report

46. Code files to Merge Nielsen and Tribune Data. SDC witness Alan Whitt

acknowledged that he no longer has access to the code files used to merge the Nielsen and

Tribune data used his HHVH report. Tr. 426:19-427:5 (Whitt). However, these intermediate

files are not necessary to establish the validity of the SDC's methodology.

47. As an initial matter, the Judges have already rejected IPG's attempt to strike

portions of the SDC Direct Statement relying on the report on the grounds of the alleged

unavailability of certain underlying data. Order Denying IPG 's Motion to Strike Portions of

SDC Written Direct Statement (May 2, 2014) ("Order Denying Motion to Strike"). IPG has

raised precisely the same claim again in its Motion in Limine, filed on August 26, 2014. The

SDC responded to that motion on September 2, 2014, and subsequently presented a Declaration

of Matthew J. MacLean, SDC-R-007, to respond to further matters presented at the hearing in

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connection with IPG's challenge. IPG's current challenge to the HHVH report raises nothing

that was not already addressed by the Judges' prior ruling.

48. Additionally, the Judges have already given credence to Dr. Erdem's testimony

that IPG had all of the data needed to test the SDC's methodology. Dr. Erdem testified during

the Hearing on IPG's Motion to Strike Portions of the SDC's Written Direct Statement that using

only the data produced to IPG, and SDC-provided sweep date data, 1 he was able to replicate Mr.

Whitt's results with a difference of only 5% ( 410 retransmitted programs identified in Dr.

Erdem's study as compared to 399 in Mr. Whitt's). Order Denying Motion to Strike at 7.

49. Further, as noted by the Judges in their Order Denying IPG's Motion to Strike,

Dr. Robinson acknowledged under oath that she could have performed a merger of the data used

by Mr. Whitt to create his report. Transcript, Hearing on IPG's Motion to Strike, at 68-69

(Robinson); Order Denying Motion to Strike at 6. Therefore, the data produced by the SDC to

IPG is more than sufficient for IPG to test the bottom-line numbers presented in the SDC's

methodology.

50. Perhaps even more importantly, Dr. Robinson admitted on cross-examination that

she had been able to replicate Mr. Whitt's results when she merged the Nielsen data with the

Tribune data and then ran the search terms provided in Mr. Whitt's testimony. Tr. 850:15-861:7

(Robinson). She admitted that the minor differences between her results and Mr. Whitt's results

were not material to this proceeding. Id. Although she claimed unconvincingly that she "had

never heard" that the Nielsen data used by Mr. Whitt embodied the Kessler sample (Tr. 862:10-

17), this testimony is directly contradicted by the transcript of her own testimony during the

1 The dates of the Nielsen sweeps were publicly available, and were provided to IPG by SDC in discovery as soon as the SDC became aware that they were needed to merge the Nielsen data with the Tribune data. See Order Denying IPG Motion to Strike Portions of SDC Written Direct Statement (May 2, 2014) at 8 n. 15.

18

hearing on IPG's motion to strike (Tr. 1003:18-1009:12 (Robinson)) and by the abundant record

with respect to the SDC's discovery and other efforts to assist lPG in replicating Mr. Whitt's

report (Exh. SDC-R-007).

51. Mr. Sanders testified that based on his vast industry experience, the HHVH report

is sufficiently reliable to render his opinion concerning the relative market value of the SDC and

lPG programs. Tr. 525:5- 526:11 (Sanders). Mr. Sanders stated that the data appeared to be

logical and comprehensive based upon the markets, stations, and programs included, and that the

data passed muster under his reasonableness test after being compared to Nielsen's local viewing

data. Id. Most importantly, Mr. Sanders testified that the results would be sufficiently reliable

for use in real life transactions between buyers and sellers of television programming, and that no

reasonable buyer or seller would ignore the data because of the deficiencies alleged by Dr.

Robinson.

52. The Kessler Sample. The SDC acknowledge that they do not know precisely how

the stations in the Kessler sample were selected. The SDC had no role in the development of the

Kessler sample. But this does not render the data unreliable.

53. Mr. Sanders testified that although the Kessler sample was not randomly selected,

and he does not have information on how the stations were chosen, he was able to observe that

the HHVH report is a "good representation of markets and a representation of programs," and

that is was reliable enough to use if he were advising a client to make a real-life "economic

decision related to [the] programming." Tr. 496:16-498:5 (Sanders). In making this

determination, Mr. Sanders pointed to the following key facts: (1) programs of every claimant at

issue in this proceeding are represented in the data; (2) all of the top 1 0 designated markets areas

for Nielsen are represented; (3) the viewership of the programming is consistent with Mr.

19

Sanders' industry experience; (4) the data were consistent and correlated with Nielsen's off-the­

shelf Report on Devotional Programming for February, 1999, oflocal viewing of devotional

programs. Tr. 499:22-501:9 (Sanders); Tr. 626:15-636:13 (Sanders). As both Mr. Sanders and

Dr. Robinson agreed, a sample need not be random in order to be sufficiently representative for a

reliable projection. Tr. 234:21-235:9. Accordingly, Mr. Sanders's expert testimony provides

sufficient grounds for the Judges to find that the Kessler sample and HHVH report are

sufficiently reliable in determining the relative market value of the SDC and IPG programs.

54. The only aspect of the Kessler sample that Dr. Robinson has specifically

identified as suggestive ofbeing unrepresentative is its apparent exclusion of Canadian stations.

But Dr. Robinson's own station selection contains only a single Canadian station on which

programs claimed in this proceeding were broadcast, and that station broadcast both an IPG

program and an SDC program. Tr. 1092:7-20 (Erdem). As the Judges previously found in the

2000-2003 cable proceeding, there is no evidence that the exclusion of Canadian stations

substantially affects the results as to either side in this case. Distribution of the 2000-2003 Cable

Royalty Funds, 78 Fed. Reg. at 64998 ("The Judges conclude that, while the exclusion of the

Canadian stations was an error, it did not have a significant effect on the relative shares

computed by MP AA'').

b. Viewership as a reliable measure of value

55. Mr. Sanders has explained that viewership is the single most important

component of valuation of television programs within a category of programming. It is a

measure of value routinely used in the television and cable industry.

56. Although it is true that cable system operators are most directly interested in

maximizing the number of subscribers, and not the number of viewers per se, it is clear that

20

viewership is closely related to subscribership, because every viewer is a subscriber and the most

compelling reason for a subscriber to subscribe is that the cable system offers programs that the

subscriber wants to view. In a sense, every program offered by a cable system operator is an

advertisement to subscribe to that cable system operator's service. It is only an effective

advertisement if people are watching.

57. Dr. Robinson argues that cable system operators cannot have taken 1999

viewership into account when deciding to retransmit in 1999, because the information would not

have been available then. The Judges have already rejected this argument, on the basis that

anticipated viewership, as opposed to viewership, would be impractical and prohibitively

expensive to measure. Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at

64995.

58. Moreover, as Mr. Sanders testified, the television industry routinely addresses this

very problem through the use of "make good" provisions, in which buyers and sellers agree to

adjust the value paid based on actual viewership data when it becomes available. Tr. 685:1-

695:18 (Sanders). As the Judges have noted, "it also would not be unreasonable to hypothesize

that the CSO and Copyright Owner might negotiate a license that would contain a provision

adjusting the value of the license, post-viewing, to reflect actual viewership." Distribution of the

2000-2003 Cable Royalty Funds, 78 Fed. Reg. at 64995 n. 48.

59. Dr. Robinson argues that viewership is an imperfect measure of value to a cable

system operator because the marginal value of each program to a cable system operator is

dependent on the number of additional subscribers that the program is able to attract, beyond

those subscribers who are already attracted by similar programs. Displacement of viewers by

other similar programs potentially decreases the marginal value of a program.

21

60. The point is best illustrated using an example that the Judges have used before.

Bewitched and I Dream of Jeannie are similar programs that might be expected to appeal to the

same niche market of viewers who enjoy 1960s situational comedies about suburban housewives

with magical powers. See Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at

64993, 65002. If Bewitched has more viewers, then a cable system operator already carrying

Bewitched might place no value in I Dream of Jeannie, because it would be likely to attract no

additional viewers, and therefore no additional subscribers. !d. Conversely, a cable system

operator already carrying I Dream of Jeannie might value Bewitched less than in the absence of I

Dream of Jeannie, because although Bewitched might attract more viewers, the marginal value

of Bewitched to an offering that already includes I Dream of Jeannie might be less than in the

absence of I Dream of Jeannie. !d.

61. Of course, this criticism is one of the principal reasons that viewership is not an

appropriate measure of value in Phase I, when valuing different categories of programming in

which programs might have substantial overlapping viewership within each category, and lower

levels of overlapping viewership with programs in different categories. Tr. 477:12-479:1

(Sanders); Tr. 705:8-706:7 (Sanders). A devotional program might have higher marginal value

than, say, Bewitched, even if Bewitched has more viewers, because the devotional program might

appeal to a different audience than Bewitched, which shares its audience with other similar

programs. See Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at 64993,

65002.

62. But within a category of relatively homogeneous programming, where the amount

of overlapping viewership is expected to be relatively uniform because the programming is

22

geared largely to the same audience, is there a way to test the likely effects of overlapping

viewership on value?

63. Fortunately, there is model capable of measuring marginal value of individual

players in a coalition of players. Tr. 1073:2-1074:9 (Erdem). Or, in this case, the marginal value

of individual programs in a coalition of programs retransmitted by a cable system operator. I d.

The measure is known as Shapley value (named for Nobel Prize-winning economist Dr. Lloyd

Shapley)? It measures the average marginal value of a player in a coalition over all possible

orders in which the player could have joined the coalition. Tr. 1075:19-1076:7 (Erdem).

64. Shapley value is calculated as follows:

l ~ R · R ¢i(v) = INI!L)v(Pi u {t})- v(Pi )]

R

Where:

vis value.

¢i(v) is the Shapley value of player i.

N is the set of all players in the coalition.

R is the set of all possible orders in which the coalition could have been formed.

piR is the coalition before i joined.

Tr. 1075:1-1079:17 (Erdem).

65. Applying this formula to I Dream of Jeannie and Bewitched, we assume

hypothetically that! Dream of Jeannie (i1) has the capacity to attract 100 subscribers to a cable

system, and Bewitched (i2 ) has the capacity to attract 150 subscribers to the cable system, of

2 http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2012 (visited on September 17, 2014). Dr. Shapley's credentials are admittedly outside the record in this matter, but it would be a disgrace not to give credit where credit is due.

23

whom 100 are the same subscribers who are attracted by I Dream of Jeannie. Tr. 1079:18-

1080:14 (Erdem).

66. There are two possible orders (r1 and r2 ) in which the programs can join the

coalition: [i 1 , i 2 ] and [i 2 , i1 ]. Id. The Shapley value solution can be charted as follows:

it iz Total (Pf U {i}) r1 Ut, iz] 1 00 subscribers +50 subscribers 150 subscribers

rz [iz, itl +0 subscribers 150 subscribers 150 subscribers

Average ( c/Ji ( v)) 50 subscribers 1 00 subscribers 150 subscribers

Tr. 1079:18-1081:3 (Erdem).

67. As can be seen in the example above, a property of the Shapley value formula is

that in a coalition of multiple players with similar amounts of overlap, greater overlap favors the

higher value player. Tr. 1082:10-1083:10 (Erdem). In other words, among programs with

similar amounts of overlapping viewership, a Shapley value measurement would predict

comparatively lower value for less viewed programs. Id. In the example above, i 2 receives

double the Shapley value of i1 , even though it has only 50% more viewership. Id.

68. Therefore, although IPG is correct that overlapping viewership can affect the use

of viewership as a measure of value, Shapley value would predict that a straight measure of

viewership overvalues, and does not undervalue, lesser viewed programs such as IPG' s. If

anything, Shapley value analysis shows that the SDC's viewership measure of value likely gives

IPG's programs more value than they are worth, since the marginal value of a lesser viewed

program is largely eclipsed by overlapping viewership with more highly viewed programs in the

same category. Tr. 1083:7-10 (Erdem).

69. The data needed to calculate precisely the relative Shapley values of IPG and

SDC programs do not exist, or at least are not obtainable by the SDC. Tr. 1084:13-1085:12;

1100:16-1101:18 (Erdem). Therefore, the SDC have prudently assigned IPG' s programs full

24

value based on viewership, rather than discounting IPG's programs for the overlapping

viewership that likely occurs. Any criticism of this approach would be expected to work in favor

ofthe SDC's higher rated programs, and not IPG's lower rated programs, absent an unexpected

asymmetry in the amount of overlap among SDC and IPG programs. Tr. 1083:7-10 (Erdem).

c. Instances of Zero Viewing

70. Dr. Robinson challenges viewership data generally by reference to the supposedly

high number of''zero viewing" instances in Nielsen's reports- instances in which there was no

detected viewing for a particular telecast. But there is ample evidence showing that the instances

of "zero viewing" do not undermine the reliability of Nielsen data in the aggregate.

71. Mr. Sanders testified that "zero-viewing" entries are anticipated results in data

measuring a small, niche kind of programming such as devotional, which is viewed by such a

small percentage of people. Tr. 518:19- 520:5; 522:9- 525:1 (Sanders). Likewise, Dr. Erdem

testified that zero viewing figures are anticipated in survey data, and that data points of zero­

observed viewing, like data-points of positive viewing, become reliable when aggregated. Tr.

1053:15- 10:54:9 (Erdem).

72. Although Dr. Robinson speculates that the relatively high number of zero-viewing

instances suggests an inadequate sample size, her own analysis leads to the opposite conclusion.

Dr. Robinson found that "2,820 or 91% of IPG broadcasts had zero-viewing compared with

1,485 or 79% ofSDC broadcasts. Based on Pearson's chi-squared test, the difference between

91% and 79% is statistically significant at the 99.9% confidence level." Robinson Rebuttal at 17

n. 17. In other words, it is 99.9% likely that the difference in zero-viewership instances is not

simply the result of random "noise" in the data- Nielsen diary holders really were less likely in a

given quarter hour to be watching an IPG program than an SDC program. Tr. 522:9-525:1

25

(Sanders); Tr. 1071:2-1072:18 (Erdem). The data is sufficient to arrive at a reliable, non-random

result.

73. As the Judges have previously found, "these 'zero viewing' sampling points can

be considered important elements of information, rather than defects in the process," and that

aggregation of"zero-viewing" instances with positive results increases the reliability of the

results. See Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at 64995. Indeed,

"it would be expected, not anomalous, for Nielsen to record some zero viewing for any given

quarter-hour period within the diary sampling (sweeps) period." Id.

74. Dr. Robinson disagrees. She makes the surprising claim that "[a]lthough no

increase in the total number of viewers is observed when broadcasts with zero viewers are added

to the total, the standard error of the sum does increase." Exh. IPG-R-001, at 11 (emphasis in

original). To examine this claim, we must consider how standard error and standard deviation

are calculated, and how Dr. Robinson uses these formulae to reach her counter-intuitive

conclusion that aggregating data increases standard error.

75. Dr. Robinson refers to the following formula in support of her claim:

Where:

s(X1 + X2) is the standard deviation of the sum of two independent variables, X1 and X2 .

s1 is the standard deviation of x1.

s2 is the standard deviation of X2 •

Exh. IPG-R-001, at 10; Tr. 872:6-11 (Robinson).

76. Because the standard deviation of the sum of two independent variables is equal to

the square root of the sum of the squares of the standard deviation of the variable (in precisely

26

the same way that the hypotenuse of a right triangle is equal to the square root of the sum of the

squares ofthe remaining sides), Dr. Robinson infers that each addition of an instance ofzero

viewing to the total increases standard error. Exh. IPG-R-001, 10-11.

77. There are three basic flaws in Dr. Robinson's approach:

a. First, the formula she uses is for the calculation of standard deviation, not

standard error. Tr. 872:10-875:13 (Robinson); Tr. 1055:11-1056:1 (Erdem). The basic

formula for calculating standard error is:

Where:

SE(y) is the standard error ofthe value y.

N is the size of the population (in this case, all television households in the United States).

n is the size of the sample (in this case, all Nielsen diary holders in a given quarter hour- or, if aggregated, all Nielsen diary holder responses for all quarter hours).

s is the standard deviation within the sample.

Exh. IPG-R-001, at 10.

Standard error is related to standard deviation, but they are not the same thing. Tr.

872:10-875:13 (Robinson). Importantly, it can be observed from the formula that

standard error would be expected to go down as the sample size, n, goes up. !d. Because

every observation of either zero viewing or positive viewing increases n by the number of

diary holders, aggregation of zero viewing instances would generally be expected to

27

decrease standard error, and not to increase standard error. Id.; Tr. 1060:10-1061:20

(Erdem).

b. Second, even if Dr. Robinson had intended to refer to standard deviation,

and not standard error, the formula she applies can only be used in the aggregation of

independent variables -that is, variables that are not correlated, either positively or

negatively. Just as the Pythagorean Theorem cannot be used to calculate the length of a

side of a triangle with no right angles, Dr. Robinson's formula, sometimes known as the

"Pythagorean Theorem of Statistics," cannot be used to calculate the standard deviation

of the sum of two variables that are correlated positively or negatively in any way. Tr.

880:6-884:14 (Robinson).

There is no evidence that different instances of either zero viewing or positive

viewing are independent of one another, and there are many reasons to expect that they

would be correlated. Tr. 1057:14-1058:5 (Erdem). Each diary holder who is watching a

program for the first quarter hour may be more likely to continue watching the same

program in the next quarter hour or to watch the same program in another quarter hour.

Tr. 884:15-885:1 (Robinson). Each diary holder watching one program in a quarter hour

is less likely to be watching another program in the same quarter hour. Tr. 886:10-21

(Robinson). Assuming the sample is representative of the population, each diary holder

in any quarter hour is more likely to watch a popular program than an unpopular

program. Tr. 885:7-886:8 (Robinson). Indeed, Dr. Robinson herself found a correlation

between instances of zero viewing when she determined that IPG programs received a

statistically significantly higher proportion of zero viewing instances than did SDC

programs. Exh. IPG-R-001, at 17 n. 17. Similarly, Mr. Sanders found a correlation

28

between distant viewership and local viewership. Exh. SDC-D-002, at 9-11. Therefore,

because different quarter hours of viewing are correlated, the Pythagorean Theorem of

Statistics cannot be used to calculate the standard deviation of the sum of aggregated

quarter hours of observation, zero or otherwise.

c. Finally, even if Dr. Robinson had intended to refer to standard deviation

instead of standard error, and even ifthere were no positive or negative correlation

between quarter hours of viewing (a fallacious assumption, as set forth above), it still

would not follow that aggregating instances of zero viewing would increase standard

deviation. The formula for calculating standard deviation is:

Where:

Yi is each value in the sample (in this case, the viewership of particular program by a single diary holder in a quarter hour).

y is the average of all values in the sample (in this case, the average viewing of a program over all diary holders in the quarter hour).

Exh. IPG-R-001, at 10.

By definition, in a quarter hour of zero viewing of a program, every Yi is zero, because

every diary holder did not watch the program. Tr. 890:18-894:15 (Robinson); Tr.

1056:13-1057:13 (Erdem). y is also zero, because it is the average of all Yi's. !d.

Therefore, the standard deviation of a single quarter hour of zero viewing is zero. !d.

29

This is another way of saying that there is no standard deviation if every value in the

sample is the same. 3

Therefore, even if the Pythagorean Theorem of Statistics were the proper formula

to apply, it would not result in an increase in standard deviation when quarter hours of

zero viewing are aggregated. Addition of zero standard deviation does not increase

standard deviation. (To be sure, aggregation of zero viewing instances with positive

viewing instances could, but would not necessarily, increase standard deviation, but that

is as a function of the general formula for calculating standard deviation, and not a

function of Dr. Robinson's formula for aggregating the standard deviations of

independent variables). Tr. 1056:13-1058:5 (Erdem).

78. These are basic formulae that can be found in any introductory textbook on

statistics. Tr. 1067:1-1067:14 (Erdem). Indeed, Dr. Robinson cites to an introductory statistics

textbook as her source for the principal formula on which she relies. Exh. IPG-R-001, at 10 n.

15. Dr. Robinson's misapplication of these formulae is much too basic to be plausibly explained

as a mistake on her part, especially from a recognized expert in statistics with a Ph.D in finance

and economics. The only plausible explanation for the flaws in her analysis is an attempt to

deceive the Judges by the use of mathematical formulae and jargon that she hoped neither the

Judges nor the SDC would understand. That was a miscalculation on Dr. Robinson's part.

79. The SDC acknowledge that standard error is not calculable based on the

information they have. Tr. 1067:15-17 (Erdem). It would obviously be preferable to have a

3 The standard error of the individual quarter hour ofzero-viewing sample would also be zero, because standard error is a product of standard deviation. Of course, this is not to say there is no error. "Standard error" is a term of art with a particular meaning in statistics -a meaning that Dr. Robinson attempted to distort. The relative error of a single quarter hour of viewing, whether zero or positive, is likely to be quite high. See Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at 64996. The data only become reliable in the aggregate.

30

calculation of standard error. But the lack of standard error is acceptable. Economists, buyers,

and sellers must make business decision on the basis ofthe data that they have. Tr. 1067:18-

1068:4 (Erdem) ("So I will [not] be troubled with the lack of standard error").4

80. As to the criticisms of the SDC methodology as a whole, the SDC admit that there

is no perfect methodology. Moreover, as testified by Mr. Sanders, cost is a factor in selecting the

study to be performed. Tr. 466:3- 468:3 (Sanders). Because the devotional category includes a

substantially smaller funding pool than the program suppliers category, this must be considered

in determining what is reasonably reliable to allocate the funds at issue. Perfect precision is not

required, especially when dealing with the relatively small amount at issue in this proceeding.

What is required is a showing that the valuation, while necessarily imperfect, is reasonably and

sufficiently reliable to allow the Judges to reach a non-arbitrary award based on evidence. The

SDC has met this burden through the testimony of its expert witness. Therefore, the Judges have

sufficient evidence to distribute a non-arbitrary award of the 1999 devotional fund in accordance

with the SDC's methodology.

CONCLUSIONS OF LAW

I. Legal Standard

81. With respect to the devotional category of programming, the Board must

determine the relative marketplace value of distantly retransmitted broadcast signal programming

as between IPG-represented programs as a whole and SDC programs as a whole, and then

allocate the royalty shares accordingly. See Distribution of 2004 and 2005 Cable Royalty Funds,

Docket No. 2007-3 CRB CD 2004-2005, 75 Fed. Reg. 57063, 57065 (Sept. 17, 2010); Program

Suppliers v. Librarian of Congress, 409 F.3d 395, 401 (D.C. Cir. 2005). Because IPG and SDC

4 The word "not" was incorrectly omitted from the transcript.

31

have their own internal methodologies for distribution of awards among individual claimants, it

is not necessary in this Phase II proceeding for the Judges to determine an award on a claimant­

by-claimant basis.

II. IPG's Methodology is Unreliable and Unsupported by Precedent

82. IPG's methodology relies on a host of factors that the Judges and their

predecessors have rejected as insufficiently related to marketplace value. Specifically, IPG relies

on the number ofbroadcast hours, a flawed and deceptive fee-generation matching game, a

measure of total television viewership by time of day, and a measure of average subscribers per

cable system. None of these is appropriate, either alone or in combination with the others, for

determining the market value of devotional programming. IPG presented a methodology using

similar measures in the 2000-2003 Distribution Proceeding, and each measure was expressly

rejected by the Judges as presented. See Distribution of the 2000-2003 Cable Royalty Funds, 78

Fed. Reg. at 65000-65003.

83. Length o[Broadcasts- IPG's first measure in its methodology, the length of the

retransmitted broadcasts, must be rejected. The Copyright Royalty Tribunal ("CRT") and the

Judges have on multiple occasions rejected time-based formulas, as they distort marketplace

analysis and ignore market considerations. I d. at 65001; see also 1983 Cable Royalty

Distribution Proceeding, Docket No. CRT 84-1 83CD, 51 Fed. Reg. 12792, 12813 (Apr. 15,

1986); see also Distribution ofthe 1979 Cable Royalty Funds, Docket No. CRT 80-4,45 Fed.

Reg. 9879, 9897 (Mar. 8, 1982). In the 2000-2003 Distribution Proceeding, the Judges rejected

IPG' s "time period weight factor" on numerous grounds, including the fact that it "ascribed

equal value to MP AA-claimed programs and IPG-claimed programs that aired on the same

station and for the same duration, despite substantially different levels of viewership." See

32

Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at 65001. Here, IPG's length

of broadcast measure fails for the same reason. The number of minutes that a program airs does

not indicate the value of the program to a cable system operator or subscriber- or even how

many subscribers were actually receiving the program. IPG's time-based methodology thus does

not inform the Judges as to the value of devotional programming.

84. Subscribers- IPG's use of subscribership as a measure in its methodology

contravenes precedent and does not produce an adequate measure of market value. The

Copyright Arbitration Royalty Panel ("CARP") expressly rejected an allocation method based on

the number of distant subscribers to signals in the 1998-1999 Distribution Proceeding.

Distribution of 1998 and 1999 Cable Royalty Funds, Docket No. 2001-8 CARP CD 98-99, 69

Fed. Reg. 3606, 3616 (Jan. 26, 2004). There, PBS presented a study that attempted to show a

relationship between the relative number of distant subscriber instances to PBS signals and the

relative marketplace value of the programming carried on those signals. The CARP rejected this

theory, stating:

... [S]ubscriber instances ... attempt to equate relative programming volume with relative programming value . ... We view [the] subscriber instances theory as relatively unuseful because it is based on a measure of time, not value.

I d.

85. Similarly, in the 2000-2003 Distribution Proceeding, the Board rejected IPG's

implementation of its subscriber-based factor on the grounds that a CSO attracts subscribers

"only to the extent that the programs it offered were demanded by customers who intended to

view the programs." See Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at

64999.

33

86. In this case, IPG's methodology does not even measure the number of subscribers

receiving a program, and even Dr. Robinson admits that she does not know whether higher

average number of subscribers per cable system would translate into more value or less value.

87. Furthermore, the unique nature of devotional programming makes subscriber

instances a particularly misleading mechanism for measuring relative value. SDC witness John

Sanders testified that unlike other programming categories, devotional programming is a niche

factor for cable operators seeking to attract niche subscribers. Tr. 512:22- 513:13 (Sanders).

Because subscribers of devotional programming constitute only a small portion of a cable

operator's subscriber base, the number of distant subscribers tells one nothing about the value

that should be allocated to devotional programs. There is no way to determine which subscribers

should be credited to devotional programs as compared to other kinds of programs.

88. Fee Generation- IPG's fee generation analysis is equally unjustified in this

proceeding. The CRT repeatedly rejected fee generation as a methodology for valuation. See

Distribution of the 1978 Cable Royalty Funds, Docket No. CRT 79-1,45 Fed. Reg. 63026,

63036 (Sept. 23, 1980) ("[b ]ecause we find that cable systems pay under compulsory license is

not a clear or true reflection of the direct marketplace value of the work, additional

considerations ... were used by the Tribunal to determine the marketplace value ... "); See also

Distribution ofthe 1980 Cable Royalty Funds, Docket No. CRT 80-1,48 Fed. Reg. 9552, 9569

(Mar. 7, 1983) (Fee generation was "based upon a methodology which the Tribunal has

repeatedly indicated fails to lend itself to an application of the Tribunal's criteria"). In those few

proceedings where fee generation has been adopted, the Judges have stated that claimants must

demonstrate that it is the best means to determine relative marketplace value. See Distribution of

2004 and 2005 Cable Royalty Funds, Docket No. 2007-3 CRB CD 2004-2005, 75 Fed. Reg.

34

57063,57071 (Sept. 17, 2010) ("In order for [fee generation] to be adopted in this proceeding,

the [claimants] must demonstrate that it is the best means of determining [claimants']

programming's relative marketplace value") (emphasis in original). Fee generation may be an

adequate approach when the signals at issue are retransmitted by cable systems as discrete, intact

distant signals containing a single kind of programming, because in such cases, the amount of

fees paid may approximate the value that the cable system operator places on that particular kind

of programming. For example, in the 1998 and 1999 Distribution Proceeding, the CARP

accorded weight to a fee generation approach in allocating funds in the PBS category because

PBS signals are retransmitted as discrete signals containing only PBS programming.

Distribution of 1998 and 1999 Cable Royalty Funds, Docket No. 2001-8 CARP CD 98-99, 69

Fed. Reg. 3606, 3609 (Jan. 26, 2004). Similarly, this Board has approved fee generation as a

measure for valuation of Canadian programs because such programs are generally retransmitted

on discrete signals containing mostly or only Canadian programming. But the Board reduced the

Canadian Claimants' fee generation award precisely because of the distorting effect on systems

that did not retransmit predominantly Canadian signals. Distribution Order, Docket No. 2008-2

CRB CD 2000-2003 (Phase I) (Mar. 3, 2010).

89. Here, even setting aside the foolish and deceptive way in which IPG chose to

compute and present its fee generation metric, IPG has failed to demonstrate that it is the best

method, or even a plausible method, for determining devotional programming shares. No

evidence suggests that any signal in IPG's study contains predominantly devotional

programming. It is impossible for IPG to determine how much in fees a cable operator paid for

any devotional program. Simply put, IPG cannot justify the use of fee generation in this

proceeding.

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90. Time o(day viewership- IPG's time of day viewership measure must be rejected

for similar reasons. A formula based on the time of day that a program airs does not take into

account program popularity, number of viewers, or the nature of the program. In the case of

devotional programming, it fails to reflect that religious programming is often featured on

Sunday mornings rather than other time periods to provide an alternative church experience for

viewers. Although other time periods might have higher average relative ratings for other kinds

of programming, this does not address the niche value of devotional programming to cable

operators.

91. Additionally, IPG's time of day analysis relies in part on 1997 Nielsen data, which

provides less coverage of the channels associated with the SDC and IPG titles than the 1999

Nielsen data. Tr. 260:10- 263:11 (Robinson). In the 2000-2003 proceeding, the Board expressly

rejected IPG's use of 1997 data to estimate viewing rather than data "contemporaneous with the

2000 through 2003 royalty distribution period at issue." See Distribution of the 2000-2003

Cable Royalty Funds, 78 Fed. Reg. at 65000-65001.

92. IPG has failed to meet its burden of establishing that its time of day analysis is a

reliable measure of relative marketplace value. See Distribution of 2004 and 2005 Cable Royalty

Funds, Docket No. 2007-3 CRB CD 2004-2005, 75 Fed. Reg. 57063, 57065 (Sept. 17, 2010).

III. SDC's Methodology, Although Imperfect, is Sufficiently Reliable and Supported by Precedent.

93. The SDC's methodology relies on program viewership data to determine relative

market value of devotional programing. Viewership is the appropriate approach for allocating

devotional shares between SDC and IPG for three reasons: (1) The Judges and their predecessors

have relied on viewership data for allocating Phase II shares; (2) viewership is the best available

measure of marketplace value within a niche market such as devotional programming; and (3)

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based on the evidence presented in this proceeding by SDC witness John Sanders, an expert in

the field of valuation of assets, the SDC's data is reliable.

94. The Board and its predecessors have frequently used viewership as a measure of

relative marketplace value in allocating shares of cable royalties. 1986 Cable Royalty

Distribution Proceeding, Notice affinal determination, in Docket No. CRT 88-2-86CD, 54 FR

16148, 16153 (Apr. 21, 1989); see also Distribution ofthe 2000-2003 Cable Royalty Funds, 78

Fed. Reg. at 64986. Indeed, the Judges have concluded that "viewership is the initial and

predominant heuristic that a hypothetical CSO would consider in determining whether to acquire

a bundle of programs for distant retransmission ... " 78 Fed. Reg. at 64996. While the Judges'

precedents have established that Bortz data is the preferred data source for measures of relative

value in Phase I proceedings, the Board has relied upon viewership as at least a crude measure of

relative marketplace value where Bortz data is unavailable. See Distribution of 1998 and 1999

Cable Royalty Funds, Docket No. 2001-8 CARP CD 98-99,69 Fed. Reg. 3606,3609 (Jan. 26,

2004); see also Program Suppliers v. Librarian a/Congress, No. 04-1070 (D.C. Cir. May 31,

2005). Bortz data is unavailable here, because the Bortz survey addresses relative valuation of

different categories of programming, not relative value of programs within a category.

95. Viewership is a particularly effective measure ofrelative marketplace value for

programming within a niche market, like the market for devotional programming. Tr. 512:22-

513:13 (Sanders). Cable systems value devotional programming because of its value in

attracting and retaining a niche market of viewers who might be less interested in other kinds of

programming. The value of a niche market is directly related to the size of that market, and

viewership is a measure of size.

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96. As established by the SDC's expert testimony, the Nielsen viewing data used by

the SDC in this proceeding is reasonably reliable. Tr. 465:20- 466:2; 480:6- 481 :13; 496:1-22;

499:22- 500:20; 525:15- 526:11 (Sanders). For decades, the Nielsen study has been credited by

the CRT and the CARP in determining royalty distributions in cable proceedings. See

Distribution of 1998 and 1999 Cable Royalty Funds, Docket No. 2001-8 CARP CD 98-99, 69

Fed. Reg. 3606, 3612 (Jan. 26, 2004); see also Distribution ofthe 2000-2003 Cable Royalty

Funds, 78 Fed. Reg. at 64986. Even after the CRT began to place less reliance on the Nielsen

study for Phase I purposes, the CRT acknowledged that the Nielsen study could determine

relative value if coupled with a means of translating shares to value. Distribution of 1998 and

1999 Cable Royalty Funds, Docket No. 2001-8 CARP CD 98-99, 69 Fed. Reg. 3606,3613 (Jan.

26, 2004). Here, the SDC have met this standard by taking Nielsen data from the Kessler

sample, incorporating Tribune Media Services data to determine what programs were distantly

viewed, calculating the relative shares using Household Viewing Hours data, and then testing the

results by comparison to local ratings data. Exhs. SDC-D-001 and SDC-D-002; Tr. 418:12-17;

433:21-434:21 (Whitt); Tr. 490:13-492:14; 476:5-8 (Sanders).

97. Although IPG criticizes the SDC's methodology on the grounds that information

is unavailable concerning the selection of the stations in the Kessler sample, and the Nielsen data

contains high instances of zero viewing, IPG has failed to persuade the Board with similar

arguments in prior royalty determinations. In the 2000-2003 Distribution Proceeding, the Board

endorsed MPAA expert Dr. Gray's decision to use Nielsen local ratings data in his analysis to

determine the relationship between local viewing and distant viewing, finding that the use of

local viewing data strengthened the results and mitigated any potential problems with zero­

viewing contained in the Nielsen diary data. Distribution of the 2000-2003 Cable Royalty

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Funds, 78 Fed. Reg. at 64996. Further, despite the Judges' criticism that Dr. Gray incorporated

into his analysis Ms. Kessler's non-random sample of 70 stations, the Judges nevertheless

credited Dr. Gray's methodology and found that the sample was sufficiently representative. Id.,

at n.49.

98. The SDC have used a less sophisticated methodology than the MPAA in this

proceeding (which does not necessarily mean it is less reliable- indeed, it is substantially easier

to test, as evidenced by the fact that Dr. Robinson succeeded in her efforts to test it). But the

SDC should be credited for their use of a related viewership methodology with many of the same

elements, particularly given the minimal size of the devotional fund at issue here. Using a

"custom analysis ofNielsen diary data [based on a] Kessler sample," "information from

Nielsen's local ratings," and "Tribune Data," all of which were used by Dr. Gray in his analysis

(!d. at 64994.), Mr. Sanders calculated the relative value shares of the SDC and IPG programs,

and then used local viewing data as compared to distant viewing data to test the validity of his

results. Tr. 490:13-492:14; 476:5-8 (Sanders).

99. Although the Judges have in the past resorted to discounting valuation

methodologies based on perceived shortcomings, this practice comes with an important caveat:

the opposing claimants must demonstrate a likelihood that they were harmed by the alleged

deficiency:

[V]iewing measurements are not perfect and the Judges must be prepared to make appropriate adjustments when claimants are able to demonstrate that their programs have not been measured or are significantly undermeasured.

Distribution ofthe 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at 64986 (citing 1987 Cable

Royalty Distribution Proceeding, 55 Fed. Reg. 5647, 5650 (Feb. 16, 1990); 1986 Cable Royalty

Distribution Proceeding, 54 Fed. Reg. 16148, 16153-54 (Apr. 21, 1989)) (emphasis added).

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100. Without this requirement for a showing of harm as a result of the alleged

deficiencies, the Judges would give the parties a strong disincentive to present the best available

methodology, and a strong incentive to force opposing parties to present the best available

methodology. They would also give excessive bargaining power to parties with less valuable

programming and no usable methodology of their own, who could afford simply to adopt a

nihilistic approach of simply poking holes and hoping that the Judges will split the difference in

the face of a perceived "Hobson's Choice." There is no such thing as a perfect methodology,

and it would be unfair and unjust for the party presenting the best available methodology

invariably to bear any discounts occasioned by deficiencies in the methodology, absent a

showing that the deficiencies likely favored the party offering it.

101. Similarly, the Judges must be reluctant to reject a reasonable methodology simply

because flaws can be found, particularly where the costs of supplementing the methodology

would be prohibitive. One of the principal purposes of the statutory license process is to mitigate

the "prohibitively high 'transaction costs' of negotiating a multitude of bilateral contracts

between potential sellers and buyers." Distribution of the 2000-2003 Cable Royalty Funds, 78

Fed. Reg. at 64991. That purpose would be utterly defeated if the Judges required the parties to

assemble and present information that is costlier than the entire pool of funds, just to have a shot

at their fair of the funds.

102. The Judges have adopted a definition of fair market value that evaluates what a

"willing buyer and a willing seller" would do in a real life transaction. !d. at 64984, 64992 (Oct.

30, 2013). Mr. Sanders testified that real buyers and sellers would consider whether the cost of

the work will exceed the value generated. Tr. 467:14-468:3 (Sanders). The Judges likewise

have recognized that likely cost of further data must be taken into account when considering a

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valuation methodology. Distribution of the 2000-2003 Cable Royalty Funds, 78 Fed. Reg. at

64995 ("The gathering and presentation of such evidence likely would be prohibitively

expensive, and the evidence in the record before the Judges does not permit such an analysis").

1 03. Here, IPG has presented no evidence whatsoever to establish that the alleged

flaws in the SDC methodology are any more likely to hurt IPG than the SDC. Indeed, Shapley

value analysis suggests the opposite. Furthermore, while the SDC's measure of viewership may

be imperfect, it nevertheless allows the Board to make a rational, non-arbitrary allocation of the

devotional royalty fund based on substantial evidence in the record. 5 U.S.C. § 706; Nat'! Assoc.

of Broadcasters v. Copyright Royalty Tribunal, 146 F.3d 907, 923 (D.C. Cir. 1992). Mr.

Sanders' analysis sets forth a methodology of sufficient precision for a reliable result. This is all

that is required.

104. Because the SDC's methodology appropriately relies on viewership data with the

required amount of precision, it is an appropriate measure of the relative marketplace value of

devotional programming in this proceeding.

IV. Conclusion

The Board should award cable royalty funds in the devotional category for 1999 as

follows:

SDC- 81.5%

IPG- 18.5%

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September 23, 2014

Respectfully submitted,

Clifford M. Harrington (D.C. B r No. 218107) Matthew J. MacLean (D.C. Bar No.479257) Victoria Lynch (D.C. Bar No. 1001445) PILLSBURY WINTHROP SHAW PITTMAN LLP Post Office Box 57197 Washington, DC 20036-9997 Telephone: 202-663-8525 Facsimile: 202-663-8007 E-Mail: Clifford.Harrington@PillsburyLaw.com Counsel for Settling Devotional Claimants

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CERTIFICATE OF SERVICE

I, VictoriaN. Lynch, hereby certify that a copy of the foregoing "SETTLING DEVOTIONAL CLAIMANTS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW" was sent overnight delivery via Federal Express this 23rct day of September, 2014 to the following:

INDEPENDENT PRODUCERS GROUP Brian D. Boydston Pick & Boydston, LLP 10786 Le Conte A venue Los Angeles, CA 90024

~/fir-VictoriaN. Lynch

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